Allianz GIs Yu Still betting on Macau

Allianz’ emerging markets manager Lu Yu says secular growth story is dead but Macau casinos will move higher

Allianz GIs Yu Still betting on Macau


The portfolio manager, who works alongside Kunal Ghosh on the Luxembourg-domiciled Emerging Market Equity Opportunities fund which was launched in January and the £287m BRIC Stars fund, claims to not be pessimistic on China, unlike many of her peers. 

She said the Chinese government will do whatever it takes to stabilise the economy because they are desperate for reform.

Her emerging markets portfolio is currently 3.4% overweight the country, reflected in holdings that play the consumption story, including communications, social networking and a credit card company.

Consumer related, not staples

Yu said she plans to maintain a general underweight in global cyclicals such as energy companies, banks, semiconductors and materials but is overweight consumer related, which look more attractive in valuation terms. The pharmaceutical sector in China was seeing 20% growth year on year, for example.

She said the Macau casino sector, understood to have overtaken that of Las Vegas, had been enjoying double digit growth, which she believed was wholly sustainable.

Last week's Chinese New Year saw the sector spike up to 40% growth, with Yu seeing no signs of it abating.

She explained that even with low penetration in terms of number of casino visits, the sheer number of people in China, determined to feed their gambling habits, meant even visits a couple of times a year generated huge numbers. As such, a top 25 stock is SJM Holdings, one of just six authorised casino operators in the region.

At country level, the manager seeks current account surpluses rather than deficits, found in Taiwan and Korea, whereas the deficits in South Africa and Turkey have led to her underweight positions.

Mexico, which the manager was keen on as a country for the reform taking place, was another portfolio underweight for its high valuations and low growth prospects.

Beware false positives

With an investment process underpinned by behavioural economics and using alpha and risk models to arrive at a universe of about 3,000 stocks, the manager then uses an ‘optimisation’ or qualitative overlay to ensure the best possible stocks are held in each sector and country  within the risk parameters.

She said this ensured there were no ‘false positives’ in there, such as Chinese agricultural companies which looked cheap, but were cheap for a reason, due to issues with corporate governance in that sector.

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